Managing the Customer Life-cycle:

Customer Acquisition, Retention and

Development
 Customer Life cycle
It is representation of the stages that customer goes
through in their relationship with the company.
Stages of the Customer Life Cycle
Customer acquisition
Customer retention
 aims to keep a high proportion of current customers by
reducing customer defections
Customer development
 aims to increase the value of those retained customers to
the company
 Why Focus on Newly Acquired Customers?

New customers may have greater future

life-time value potential than longer
tenure customers

evidence suggests that retention rates rise

over time, so if defections can be prevented
in the early stages of a relationship, there
will be a pay-off in future revenue streams
 Key Customer Acquisition Questions
Which prospects (potential new customers) will
be targeted?

How will these prospects be approached?

What offer will be made?

 Two Types of New Customer
New-to-Product category
are customers are customers who have either
identified a new need or have found a new
category of solution for an existing need

New-to-company
are customers are won from competitors
 Strategic Switching
Strategic switching occurs when customers
who shift their allegiances from one supplier
to another in pursuit of a better deal

Banks know that their promotional pricing

stimulates hot money
 Hofmeyr’s Conversion Model

Hofmeyr’s basic premise is that customers

who are not committed are more likely to be
available to switch to another provider.

Commitment is a function of satisfaction with

the brand or offer, the attractiveness of
alternatives, and involvement in the brand or
offer.
 Selection of Prospects to Target for
Acquisition
What is the estimated value of the customer?
This depends on the margins earned from the
customer’s purchases over a given time period.
If that customer switches from his current
supplier/s, what proportion of category
spending will your company earn?
What is the probability that the customer will
switch from current supplier/s?
 B2B Prospecting: Key Questions
• Does the lead have a need for my company’s
products?

• Does the lead have the ability to pay?

• Is the lead authorised to buy?

 Sources of B2B Leads
 Satisfied customers
 Referrals from satisfied customers
 Networking
 Personal contacts with well-connected and co-operative people
• Promotional activities
 Exhibitions, seminars, tradeshows and conferences
 Delegate and attendee lists
 Advertising response inquiries
 Publicity
 Web-sites
 Lists and directories
 SIC listings, telephone directories
 Canvassing
 Tele-marketing
 E-Mail Marketing
 Sources of B2C Prospects
advertising
sales promotion
buzz or word-of-mouth
merchandising
 Advertising

Advertising is the creation and delivery of

messages to targeted audiences through the
purchase of time or space in media owned by
others.
 Cognitive & Affective Advertising
Objectives
Cognitive advertising Affective advertising
objectives include objectives include
 raising awareness developing a liking
 developing for the product
understanding
generating
 generating knowledge preference
 Advertising Questions for Customer
Acquisition

Which messages will generate most new

customers?

Which media are most cost-effective at

customer acquisition?
 Media Efficiency Statistics
Response rates provide a first-level indicator
of ad effectiveness.
Examples include the number of coupons clipped
and returned, or calls requesting information (RFI)
made to a contact centre.
Conversion rates offer a second-level
indicator of ad effectiveness.
Examples include sales made as a percentage of
coupons returned, or proposals submitted as a
percentage of RFIs.
 KPI’s for Customer Acquisition
Programs
How many customers are acquired?

What is the cost per acquired customer?

What is the value of the acquired customer?

 Operational CRM Tools for Customer
Acquisition
lead management
 The lead management process includes a number of sub-
processes, including lead generation, lead qualification,
lead allocation and lead tracking
campaign management
 Campaign managers design, execute and measure
marketing campaigns with the support of CRM
technologies. Sometimes these are multi-media campaigns
across direct mail, , fax, outbound telephony, and SMS
platforms
 Event-based marketing
 EBM provides companies with opportunities to approach
prospects at times which have a higher probability of
leading to a sale, e.g. important life-stage events
 CRM Analytics Supports Customer
Acquisition

Operational CRM tools have to be supported

by sound analytics to ensure that the right
offer is made to the right prospect through
the right channel at the right time

It is often possible to query current customer-

related databases for clues to guide customer
acquisition
 Customer Retention

Customer retention is the number of customers

doing business with a firm at the end of a
financial year expressed as a percentage of
those who were active customers at the
beginning of the year.
 Contents of a Customer Retention
Plan
 Which customers should be targeted for
retention?
What customer retention objectives should
be set?
What customer retention strategies will be
used?
How will the performance of the retention
plan be measured?
Can You Tell If a Customer Has Defected?

May not be able to measure retention and

defection if you have
Product-based views of customers
Channel-based views of customers
Separate customer records in sales,
marketing and service
 Measures of Customer Retention
Raw customer Retention rate
 the number of customers doing business with a firm at the
end of a trading period expressed as percentage of those
who were active customers at the beginning of the period.
Sales-adjusted Retention rate
 the value of sales achieved from the retained customers
expressed as a percentage of the sales achieved from all
customers who were active at the beginning of the period.
Profit-adjusted Retention rate
 the profit earned from the retained customers expressed
as a percentage of the profit earned from all customers
who were active at the beginning of the period.
 Retention Issues
It may not be beneficial to maintain
relationships with all customers. Some are

too costly to serve

strategic switchers constantly in search of a better
deal
not strategically significant in roles such as
benchmark, door opener, inspiration or
technology partner
 Which customers to retain?
Strategically significant customers
High life-time value customers
High volume customers
Benchmarks
Inspirations
Door openers

But… these may also be attractive to your

competitors
 Commitment and Retention
The level of commitment between your
customer and you will figure in the decision
about which customers to retain.
If the customer is highly committed, i.e.
impervious to the appeals of competitors, you do
not need to invest so much in retention.
If strategically significant customers are not
committed to you, you may want to invest
considerable sums in their retention
 Negative & Positive Customer
Retention Strategies

Create exit barriers Delight customers

Enforce the contract Create customer-
Extract switching perceived added value
penalties Create social and
structural bonds
Create customer
engagement
 What is Customer Delight?
Customer delight = P > E where

P = Perception

E = Expectation
 What Do Customers Really Expect?
1 . Expectations based on promises
“I expect to have my car serviced within 2 days of
calling the garage”

2. Expectations based on desires

“I want my car serviced the day I call the garage”

3. Expectations based on experience

“Most folks normally have to wait 3 days to have their car
serviced”

4. Expectations based on ideals

“My car should be serviced overnight and delivered to my
home the next morning”
 Ways to Delight Customers
provide information about the customer’s
served market
A packaging company could alert a fast-moving
consumer goods manufacturer customer to
competitive initiatives in the market.
volunteer to collect and replace a faulty product
from a customer rather than issuing a credit note
offer better, lower cost solutions to the
customer, even though that might reduce margin
3 Ways to Create Customer-perceived
Added Value

loyalty schemes
customer clubs
sales promotions
 Bonds
Social Structural
 Positive relationships  Investments linking
between individuals customer and supplier
 Financial
 Empathy  Legal
Responsiveness  Equity
 Reliability  Technological
 Value-based
 Leads to development of
trust and commitment  Geographic
 Project
 Multi-product
 KPIs for Customer Retention Programs
 Raw customer retention rate
 Raw customer retention rate in each customer segment
 Sales-adjusted retention rate
 Sales-adjusted retention rate in each customer segment
 Profit-adjusted retention rate
 Profit-adjusted retention rate in each customer segment
 Cost of customer retention
 Share of wallet of the retained customers
 Customer churn rate per product category, sales region
or channel
 Cost-effectiveness of customer retention tactics
Customer Development
 The Role of Research Why are
customers churning?

Are there any lead indicators of impending

defection?
What can be done to address the root causes?
 Advance Indicators of Intention to Churn

 Reduced RFM scores (Recency – Frequency – Monetary

value)
 Non-response to a carefully targeted offer
 Reduced levels of customer satisfaction
 Dissatisfaction with complaint handling
 Reduced share of customer (e.g. customer only flies one
leg of an international flight on your airline)Inbound calls
for technical or product-related information
 Late payment of an invoice
 Querying an invoice
 Customer touch points are changed e.g. store closes,
change of website address
 Customer change of address
• Customer development is process of growing
value of retained customer
• Strategies:
Cross selling is selling additional products and
services to an existing customer aims to grow
share of wallet
Up-selling is selling higher priced or higher margin
products and services to existing customer
 CRM Technologies for Customer
Development
 Campaign management
Event-based marketing
Data mining
Customization
Channel integration
Integrated customer communications
Marketing optimization
Strategies for Terminating Customers
• Raise prices
• Un-bundle the offer
• Re-specify the product
• Reorganise sales, marketing and service
departments
• Introduce ABC class service
 Typology of Companies’ Termination
Behaviours
Hardliners
take an active and rigorous stance in terminating
unprofitable relationships, including the regular
clearance of their customer portfolio.
Appeasers
take a more cautious approach concerning the
termination of unprofitable relationships
The undecided
are reluctant to terminate unprofitable relationships